Does Debit Card Processing or Credit Card Processing Have a Higher Fraud Risk?

girls paying online with credit card

Debit and credit card protection are important for your customers and your business. But which is safer: credit card processing or debit card processing?

A 2017 survey provided answers to what customers prefer to pay with: 44 percent prefer debit cards, and 33 percent prefer credit cards (only 12 percent prefer cash). But despite these preferences, there are some unique risks these cards pose. While you don't want to alienate customers who prefer to pay in a certain type of way, here are some things to be aware of with the types of payments your business accepts, including ecommerce credit card processing.

Debit Card Processing: Risks and Benefits

Debit cards require a PIN to process a payment in person, but once the correct PIN is entered, the transaction is completed. This can be dangerous if a thief is using a stolen debit card and also has the PIN. They can spend to their heart's content, and no suspicious warning signs will pop up because the payment goes through as long as there's money in the bank account. Some banks will hold the cardholder completely responsible for PIN-based transactions, even if the card was stolen.

There are some debit card protection and credit card protection measures in place for fraudulent charges. The Electronic Funds Transfer Act places a $50 maximum liability on a debit cardholder as long as the customer reports the fraud within 48 hours of discovery. After 48 hours, the liability rises to $500, and after 60 days, there is no limit. For credit cardholders, on the other hand, the maximum liability stays $50 as long as the loss or theft is reported in a timely manner.

Online, there's no PIN needed to use a debit card, which makes online debit card purchases riskier than online credit card purchases since the debit card account is immediately accessed and depleted. While the cardholder can dispute fraudulent online debit card charges, it can take several days for a debit card investigation to be completed and for the cardholder to get the money back, if at all. Also, if there are goods that are lost or damaged during shipping, there is no guarantee that disputing this will result in a refund for a debit card purchaser, since that is up to the discretion of the business.

While these are risks for customers, accepting debit cards in-person for your business can help reduce fraud since you're requiring customers to enter a PIN in order to complete the transaction. This extra step may be enough to turn fraudsters away.

Credit Card Processing: Risks and Benefits

One of the risks associated with using credit cards is that many individuals spend more than they should because there are high spending limits, and the money can be paid back at a later date. If the cardholder has trouble paying back what they owe after they've shopped with you, though, that's not your problem – it's their issue to deal with along with their bank's.

There are major benefits to paying for purchases with credit cards. One is that many offer some type of spending rewards, including cash back. As long as the cardholder makes full payments on time, they'll never have to spend on extra fees but could make money by using a credit card in the process.

Another benefit is that if there is a disputed charge due to credit card fraud, the cardholder does not face liability. As long as your business uses EMV chip card equipment, you won't be liable for fraudulent card-present charges, either. The fraud charge responsibilities will be placed with the bank.

However, because credit cards can be used to purchase pricey goods from your business, a fraudulent customer may leave your store with merchandise in hand. You may want to limit high-price purchases to debit cards for this reason.

Also, the law tends to be more forgiving for credit cardholders compared to debit cardholders. According to the Fair Credit Billing Act, credit card users can dispute the purchase of goods that are lost or damaged during shipping, as well as unauthorized purchases, giving consumers extra protection for ecommerce credit card processing. Disputed charges will be prevented from being finalized, instead of already being directly deducted from a cardholder's account like a debit card charge.

Protect Your Business from Fraud Either Way

Because consumers want the ability to pay with plastic online and in person, offering debit and credit card acceptance for your business can help you increase sales. Use these best practices to protect your business against fraud.

  • Card-present transactions: Only accept payments on EMV chip card machines. This lifts the liability of fraudulent purchases off your business. For pricey items, consider accepting debit card payments only.
  • Card-not-present transactions: Ask for a full billing address and card verification code in addition to the card number and expiration date. If billing addresses and shipping addresses don't match, consider investigating the purchase and confirming it before completing the transaction. You can also use multi-factor authentication, by adding an additional step for security. For example, text the customer a unique code that they must input to complete the transaction.

If at any time a transaction seems suspicious, make sure your staff is trained to stop it before it's completed. In person, you can ask for a form of identification, or flat-out deny the transaction. Online or over the phone, you can use multiple steps of verification to confirm the shopper's identity.

Only use point-of-sale equipment that is PCI-compliant and that protects customer cardholder data. Contact Humboldt for secure payment processing services.

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